Stay Informed!

By Sarah Schaefer on 05/20/2011 @ 11:30 AM

Tags: Entrepreneurship

Myth #5: Filing taxes comes at a great cost with little benefit to self-employed individuals

Yesterday, we examined how the tax code creates challenges for self-employed individuals. Although the tax code can be a barrier to startup business growth, we explained how it also offers a unique opportunity to reach new entrepreneurs and to use tax time as a learning opportunity. Most importantly, filing taxes helps entrepreneurs reach their full potential to grow their businesses, thereby creating jobs, generating wealth and contributing to economic vitality.

For example, an estimate 4 million small businesses are in the “informal” economy, preventing them from receiving assistance through capital and loans and making it difficult for them to expand their businesses. By filing taxes, businesses in the informal economy take their first step in joining the “formal” economy, which provides them with more business opportunities and a better chance of financial sustainability.

Additionally, by filing taxes, some self-employed entrepreneurs become eligible for tax credits and refunds, such as the Earned Income Tax Credit, which can give them extra money to save or to invest in their businesses.

By paying taxes, the self-employed also begin contributing to social safety net programs, such as Social Security and Medicare, which provides them greater long-term financial security.

Although it can be burdensome and complex, the tax code actually offers ways for entrepreneurs to become more financially stable and secure. In contrast, not paying taxes can lead entrepreneurs to fall into long-term debt from which they may never recover. This is why SETI’s strategy of offering free or low-tax preparation to entrepreneurs is so valuable: business owners who fail to pay taxes miss out on the opportunity for growth and financial stability.

This post concludes our National Small Business Week blog series, but we don’t want the conversation to end here! Use the comments section below to describe what other myths about entrepreneurship are out there, share your personal experiences with self-employment or post resources that you think might be helpful to the CFED learning community!

National Small Business Week, May 16-20, 2011, celebrates the contributions of small businesses to the economic well-being of America. CFED would like to thank our sponsor, Sam’s Club Giving Program for its commitment to help start and grow small businesses and for its support of the Self Employment Tax Initiative. To find out more about National Small Business Week, click here. To find out more about how Sam’s Club is helping small businesses, click here.

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